[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[H.R. 391 Introduced in House (IH)]







105th CONGRESS
  1st Session
                                H. R. 391

 To amend the Internal Revenue Code of 1986 to provide incentives for 
 investments in tax enterprise zone businesses and domestic businesses.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            January 9, 1997

 Mr. Andrews introduced the following bill; which was referred to the 
                      Committee on Ways and Means

_______________________________________________________________________

                                 A BILL


 
 To amend the Internal Revenue Code of 1986 to provide incentives for 
 investments in tax enterprise zone businesses and domestic businesses.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Domestic Investment Economic Growth 
Act''.

SEC. 2. EXCLUSION FOR GAIN ON INVESTMENTS IN ENTERPRISE ZONE BUSINESSES 
              AND DOMESTIC BUSINESSES.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to items specifically excluded 
from gross income) is amended by redesignating section 138 as section 
139 and by inserting after section 137 the following new section:

``SEC. 138. GAIN ON INVESTMENTS IN ENTERPRISE ZONE BUSINESSES AND 
              DOMESTIC BUSINESSES.

    ``(a) General Rule.--Gross income does not include any qualified 
investment gain.
    ``(b) Qualified Investment Gain.--For purposes of this section--
            ``(1) In general.--The term `qualified investment gain' 
        means the eligible percentage of any long-term capital gain 
        properly attributable to any sale or exchange of a qualified 
        investment, other than a sale or exchange to a related person 
        (within the meaning of section 267(b)).
            ``(2) Eligible percentage.--The term `eligible percentage' 
        means--
                    ``(A) 100 percent, in the case of a qualified 
                investment with respect to an enterprise zone business 
                or urban enterprise zone, and
                    ``(B) 50 percent, in the case of any qualified 
                investment not described in subparagraph (A).
    ``(c) Qualified Investments.--For purposes of this section--
            ``(1) In general.--The term `qualified investment' means 
        any eligible investment, if the holding period of the taxpayer 
        with respect to such investment is not less than 1 year.
            ``(2) Eligible investment.--The term `eligible investment' 
        means the following:
                    ``(A) Any stock, partnership interest, or other 
                ownership interest in an enterprise zone business or 
                domestic business.
                    ``(B) Any real property located entirely within an 
                urban enterprise zone.
                    ``(C) Any fund of a regulated investment company, 
                if all of the investments held by such fund in each 
                year are qualified investments.
            ``(3) Enterprise zone business.--The term `enterprise zone 
        business' has the meaning given to such term by section 1397B.
            ``(4) Domestic business.--The term `domestic business' 
        means any corporation or partnership (other than an enterprise 
        zone business) incorporated or formed in the United States if--
                    ``(A) not less than 80 percent of the employees of 
                the corporation or partnership are United States 
                citizens employed within the United States, and
                    ``(B) either--
                            ``(i) the corporation devotes more then 25 
                        percent of its annual expenses to payroll, or
                            ``(ii) substantially all of the activities 
                        of the corporation or partnership involve the 
                        active conduct of 1 or more trades or 
                        businesses in the United States.
    ``(d) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Urban enterprise zone.--The term `urban enterprise 
        zone' means any empowerment zone, or enterprise community, 
        which is located within an urban area (as defined in section 
        1393).
            ``(2) Treatment of new businesses.--A new corporation or 
        partnership shall be treated as an enterprise zone business or 
        domestic business if such corporation or partnership certifies 
        an intent to comply with the requirements set forth in 
        subsection (c)(3) or (c)(4), as the case may be.
    ``(e) Coordination With Investment Savings Account Provisions.--
Subsection (a) shall not apply to any amount distributed out of an 
investment savings account (within the meaning of section 221(c)).''
    (b) Clerical Amendment.--The table of sections for part III of 
subchapter B of chapter 1 of such Code is amended by striking the item 
relating to section 138 and inserting the following:

                              ``Sec. 138. Gain on investments in 
                                        enterprise zone businesses and 
                                        domestic businesses.
                              ``Sec. 139. Cross references to other 
                                        Acts.''
    (c) Effective Date.--The amendments made by this section shall 
apply taxable years beginning after the date of the enactment of this 
Act.

SEC. 3. DEDUCTION FOR CONTRIBUTIONS TO INVESTMENT SAVINGS ACCOUNTS.

    (a) In General.--Part VII of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to additional itemized 
deductions for individuals) is amended by redesignating section 221 as 
section 222 and by inserting after section 220 the following new 
section:

``SEC. 221. CONTRIBUTIONS TO INVESTMENT SAVINGS ACCOUNTS.

    ``(a) Deduction Allowed.--
            ``(1) In general.--In the case of an individual, there 
        shall be allowed as a deduction for the taxable year an amount 
        equal to the sum of--
                    ``(A) 50 percent of the qualified contributions of 
                the individual to an investment savings account for the 
                taxable year, and
                    ``(B) if the individual is not less than 59\1/2\ 
                years of age at the end of the taxable year, an amount 
                equal to the sum of--
                            ``(i) 50 percent of the qualified 
                        contributions of the individual to an 
                        investment savings account for the 10th 
                        preceding taxable year, to the extent such 
                        contributions remain in the account, and
                            ``(ii) 50 percent of the qualified 
                        contributions of the individual to an 
                        investment savings account for the 20th 
                        preceding taxable year, to the extent such 
                        contributions remain in the account.
            ``(2) Maximum annual amount.--The amount allowable as a 
        deduction under paragraph (1) to any individual for a taxable 
        year shall not exceed $100,000.
    ``(b) Qualified Contributions.--For purposes of this section--
            ``(1) In general.--The qualified contributions of an 
        individual for any taxable year shall be the amount equal to 
        the lesser of--
                    ``(A) the individual's qualified savings increase 
                amount for the taxable year, or
                    ``(B) the contributions made by the individual to 
                the investment savings account during the taxable year.
            ``(2) Qualified savings increase amount.--The term 
        `qualified savings increase amount' means the amount (if any) 
        by which--
                    ``(A) the individual's qualified net worth increase 
                amount, exceeds
                    ``(B) the applicable threshold amount.
            ``(3) Qualified net worth increase amount.--
                    ``(A) In general.--The term `qualified net worth 
                increase amount' means the amount (if any) by which--
                            ``(i) qualified net worth on December 31 of 
                        the taxable year, exceeds
                            ``(ii) qualified net worth on January 1 of 
                        such taxable year.
                    ``(B) Qualified net worth.--The term `qualified net 
                worth' means net worth, determined without regard to 
                any portion of the value of property which is in excess 
                of the adjusted basis.
            ``(4) Applicable threshold amount.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `applicable threshold 
                amount' means the national average qualified net worth 
                increase amount determined by the Secretary for the 
                taxable year for the tax rate category of the taxpayer.
                    ``(B) 1st year.--For taxable years beginning in 
                1997, the term `applicable threshold amount' means the 
                applicable percentage of the taxpayer's adjusted gross 
                income, determined in accordance with the following 
                table:

                                                             Applicable
``If adjusted gross income is:                              Percentage:
    Not over $13,000..............................                   0 
    Over $13,000 but not over $24,000.............                   0 
    Over $24,000 but not over $36,000.............                   0 
    Over $36,000 but not over $55,000.............                   5 
    Over $55,000 but not over $70,000.............                   7 
    Over $70,000 but not over $100,000............                   9 
    Over $100,000 but not over $140,000...........                  15 
    Over $140,000 but not over $200,000...........                  18 
    Over $200,000 but not over $500,000...........                  20 
    Over $500,000 but not over $1,000,000.........                  25 
    Over $1,000,000...............................                  30.
            ``(5) Time when contributions deemed made.--A taxpayer 
        shall be deemed to have made a contribution to an investment 
        savings account on the last day of the preceding taxable year 
        if the contribution is made on account of such taxable year and 
        is made not later than the time prescribed by law for filing 
        the return for such taxable year (not including extensions 
        thereof).
    ``(c) Investment Savings Account.--For purposes of this section, 
the term `investment savings account' means a trust created or 
organized in the United States for the exclusive benefit of an 
individual and the individual's beneficiaries, but only if the written 
governing instrument creating the trust meets the following 
requirements:
            ``(1) No contribution will be accepted unless it is in 
        cash.
            ``(2) The trustee is a bank (as defined in section 408(n)) 
        or another person who demonstrates to the satisfaction of the 
        Secretary that the manner in which that person will administer 
        the trust will be consistent with the requirements of this 
        section.
            ``(3) The trust assets will be invested only in--
                    ``(A) eligible investments (as defined by section 
                138(c)(2)),
                    ``(B) bonds issued by enterprise zone business and 
                domestic business, and
                    ``(C) loans to enterprise zone businesses and 
                domestic businesses.
            ``(4) The interest of the individual in the balance of the 
        individual's account is nonforfeitable.
            ``(5) The assets of the trust will not be commingled with 
        other property except in a common trust fund or common 
        investment fund.
    ``(d) Tax Treatment of Distributions.--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, any amount distributed out of an investment savings 
        account shall be included in the gross income of the 
        distributee for the taxable year in which the distribution is 
        received.
            ``(2) Amounts held in account for 10 years.--Paragraph (1) 
        shall not apply to any distribution from an investment savings 
        account to the extent attributable to amounts held in the 
        account for at least a 10-year period.
            ``(3) Excess contributions returned before due date of 
        return.--Paragraph (1) shall not apply to the distribution of 
        any contribution paid during a taxable year to an investment 
        savings account to the extent that such contribution exceeds 
        the amount allowable as a deduction under subsection (a) if--
                    ``(A) such distribution is received on or before 
                the day prescribed by law (including extensions of 
                time) for filing such individual's return for such 
                taxable year,
                    ``(B) no deduction is allowed under subsection (a) 
                with respect to such excess contribution, and
                    ``(C) such distribution is accompanied by the 
                amount of net income attributable to such excess 
                contribution.
        Any net income described in subparagraph (C) shall be included 
        in the gross income of the individual for the taxable year in 
        which such excess contribution was made.
    ``(e) Tax Treatment of Accounts.--
            ``(1) Exemption from tax.--An investment savings account is 
        exempt from taxation under this subtitle unless such account 
        has ceased to be an investment savings account by reason of 
        paragraph (2). Notwithstanding the preceding sentence, any such 
        account is subject to the taxes imposed by section 511 
        (relating to imposition of tax on unrelated business income of 
        charitable, etc. organizations).
            ``(2) Loss of exemption of account where individual engages 
        in prohibited transaction.--
                    ``(A) In general.--If the individual for whose 
                benefit an investment savings account is established or 
                any individual who contributes to such account engages 
                in any transaction prohibited by section 4975 with 
                respect to the account, the account shall cease to be 
                an investment savings account as of the first day of 
                the taxable year (of the individual so engaging in such 
                transaction) during which such transaction occurs.
                    ``(B) Account treated as distributing all its 
                assets.--In any case in which any account ceases to be 
                an investment savings account by reason of subparagraph 
                (A) as of the first day of any taxable year, paragraph 
                (1) of subsection (d) shall apply as if there was a 
                distribution on such first day in an amount equal to 
                the fair market value (on such first day) of all assets 
                in the account (on such first day).
            ``(3) Effect of pledging account as security.--If, during 
        any taxable year, the individual for whose benefit an 
        investment savings account is established, or any individual 
        who contributes to such account, uses the account or any 
        portion thereof as security for a loan, the portion so used 
        shall be treated as distributed to the individual so using such 
        portion.
    ``(f) Additional Tax on Certain Amounts Included in Gross Income.--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, in the case of any distribution from an investment 
        savings account, the tax liability of each distributee under 
        this chapter for the taxable year in which the distribution is 
        received shall be increased by an amount equal to 10 percent of 
        the amount of the distribution which is includible in the gross 
        income of such distributee for such taxable year.
            ``(2) Qualified distributions from amounts held in account 
        for 5 years.--
                    ``(A) In general.--Paragraph (1) shall not apply to 
                any qualified distribution from an investment savings 
                account, to the extent attributable to amounts held in 
                the account for at least a 5-year period.
                    ``(B) Qualified distribution.--For purposes of 
                subparagraph (A), the term `qualified distribution' 
                means any distribution received from an investment 
                savings account, to the extent used within a reasonable 
                period to pay any of the following expenses:
                            ``(i) Home purchase expenses.--Expenses 
                        relating to the acquisition of a principal 
                        residence (within the meaning of section 1034) 
                        for the individual for whose benefit the 
                        account is established.
                            ``(ii) Automobile purchase expenses.--
                        Expenses relating to the acquisition of an 
                        automobile for the individual for whose benefit 
                        the account is established.
                            ``(iii) Education expenses.--Qualified 
                        higher education expenses (within the meaning 
                        of section 135(c)(2)).
                            ``(iv) Medical expenses.--Medical expenses 
                        (within the meaning of section 72(t)(2)(B)).
            ``(3) Additional exceptions.--Paragraph (1) shall not apply 
        if the distribution is made after the individual for whose 
        benefit the investment savings account is established--
                    ``(A) attains 59\1/2\ years of age, or
                    ``(B) becomes disabled within the meaning of 
                section 72(m)(7) or dies.
            ``(4) Disqualification cases.--If an amount is includible 
        in the gross income of an individual for a taxable year because 
        such amount is required to be treated as a distribution under 
        paragraph (2) or (3) of subsection (e), such individual's tax 
        liability under this chapter for such taxable year shall be 
        increased by an amount equal to 10 percent of such amount 
        required to be treated as a distribution and included in the 
        gross income of such individual.
    ``(g) Community Property Laws.--This section shall be applied 
without regard to any community property laws.
    ``(h) Special Rules.--For purposes of this section--
            ``(1) Ordering rule.--Distributions from an investment 
        savings account shall be treated as having been made--
                    ``(A) first from the earliest contribution 
                remaining in the account at the time of the 
                distribution,
                    ``(B) second from other contributions in the order 
                in which made, and
                    ``(C) third from earnings.
            ``(2) Custodial accounts.--A custodial account shall be 
        treated as a trust if the assets of such account are held by a 
        bank (as defined in section 408(n)) or another person who 
        demonstrates, to the satisfaction of the Secretary, that the 
        manner in which he will administer the account will be 
        consistent with the requirements of this section, and if the 
        custodial account would, except for the fact that it is not a 
        trust, constitute an investment savings account described in 
        subsection (c). For purposes of this title, in the case of a 
        custodial account treated as a trust by reason of the preceding 
        sentence, the custodian of such account shall be treated as the 
        trustee thereof.
    ``(i) Reports.--
            ``(1) In general.--The trustee of an investment savings 
        account shall make such reports regarding such account to the 
        Secretary and to the individual for whose benefit the account 
        is maintained with respect to contributions, distributions, and 
        such other matters as the Secretary may require under 
        regulations. Except as provided in paragraph (2), the reports 
        required by this subsection shall be filed at such time and in 
        such manner and furnished to such individuals at such time and 
        in such manner as may be required by those regulations.
            ``(2) First report.--The trustee of an investment savings 
        account shall make the first report required under paragraph 
        (1) not later than the expiration of the 3-month period 
        beginning on the date on which the account is established.''
    (b) Allowance of Deduction in Computing Adjusted Gross Income.--
Subsection (a) of section 62 of such Code (defining adjusted gross 
income) is amended by inserting after paragraph (16) the following new 
paragraph:
            ``(17) Contributions to investment savings accounts.--The 
        deduction allowed by section 221(a).''
    (c) Contribution Not Subject to Gift Tax.--Section 2503 of such 
Code (relating to taxable gifts) is amended by adding at the end the 
following new subsection:
    ``(h) Investment Savings Accounts.--Any contribution made by an 
individual to an investment savings account described in section 221(c) 
which is allowable as a deduction under section 221 shall not be 
treated as a transfer of property by gift for purposes of this 
chapter.''
    (d) Tax on Excess Contributions.--Section 4973 of such Code 
(relating to tax on excess contributions to individual retirement 
accounts, certain section 403(b) contracts, and certain individual 
retirement annuities) is amended--
            (1) in subsection (a), by striking ``or'' at the end of 
        paragraph (2), by redesignating paragraph (3) as paragraph (4), 
        and by inserting after paragraph (2) the following new 
        paragraph:
            ``(3) an investment savings account (within the meaning of 
        section 221(c)), or'', and
            (2) by adding at the end the following new subsection:
    ``(e) Excess Contributions to Investment Savings Accounts.--For 
purposes of this section, in the case of an investment savings account, 
the term `excess contributions' means the amount by which the amount 
contributed for the taxable year to the account exceeds the amount 
allowable as a deduction under section 221 for such taxable year. For 
purposes of this subsection, any contribution which is distributed out 
of the investment savings account in a distribution to which section 
221(d)(3) applies shall be treated as an amount not contributed.''
    (e) Tax on Prohibited Transactions.--
                    (A) Section 4975 of such Code (relating to 
                prohibited transactions) is amended by adding at the 
end of subsection (c) the following new paragraph:
            ``(5) Special rule for investment savings accounts.--An 
        individual for whose benefit an investment savings account is 
        established and any contributor to such account shall be exempt 
        from the tax imposed by this section with respect to any 
        transaction concerning such account (which would otherwise be 
        taxable under this section) if, with respect to such 
        transaction, the account ceases to be an investment savings 
        account by reason of the application of section 221(e)(2)(A) to 
        such account.'', and
                    (B) Paragraph (1) of section 4975(e) of such Code 
                is amended by striking ``or'' at the end of 
                subparagraph (D), by redesignating subparagraph (E) as 
                subparagraph (F), and by inserting after subparagraph 
                (D) the following new subparagraph:
                    ``(E) an investment savings account described in 
                section 221(c), or''.
    (f) Failure To Provide Reports on Investment Savings Accounts.--
Paragraph (2) of section 6693(a) of such Code (relating to failure to 
provide reports on individual retirement accounts or annuities) is 
amended by striking ``and'' at the end of subparagraph (A), by striking 
the period at the end of subparagraph (B) and inserting ``, and'', and 
by adding at the end the following new subparagraph:
                    ``(C) section 221(i) (relating to investment 
                savings accounts).''
    (g) Additional Penalties.--Part I of subchapter B of chapter 68 of 
such Code (relating to assessable penalties) is amended by adding at 
the end the following new section:

``SEC. 6716. PROMOTION OF NONQUALIFIED INVESTMENT AS ELIGIBLE FOR 
              DOMESTIC INVESTMENT ECONOMIC GROWTH EXCLUSION OR 
              DEDUCTION.

    ``(a) Imposition of Penalty.--If any person--
            ``(1) makes a statement that an investment or account is 
        eligible for an exclusion under section 138 or deduction under 
        section 221, and
            ``(2) at the time such statement is made, there was no 
        reasonable basis for such statement,
such person shall pay a penalty equal to twice the aggregate amount of 
exclusions and deductions taken by other persons under such sections in 
reliance on such statement.
    ``(b) Penalty in Addition to Other Penalties.--The penalty imposed 
by subsection (a) shall be in addition to any other penalty provided by 
law.''
    (h) Clerical Amendments.--
            (1) The table of sections for part VII of subchapter B of 
        chapter 1 of such Code is amended by striking the item relating 
        to section 221 and inserting the following new items:

                              ``Sec. 221. Contributions to investment 
                                        savings accounts.
                              ``Sec. 222. Cross reference.''
            (2)(A) The section heading for section 4973 of such Code is 
        amended to read as follows:

``SEC. 4973. TAX ON EXCESS CONTRIBUTIONS TO INDIVIDUAL RETIREMENT 
              ACCOUNTS, MEDICAL SAVINGS ACCOUNTS, INVESTMENT SAVINGS 
              ACCOUNTS, CERTAIN 403(b) CONTRACTS, AND CERTAIN 
              INDIVIDUAL RETIREMENT ANNUITIES.''

            (B) The table of sections for chapter 43 of such Code is 
        amended by striking the item relating to section 4973 and 
        inserting the following new item:

                              ``Sec. 4973. Tax on excess contributions 
                                        to individual retirement 
                                        accounts, medical savings 
                                        accounts, investment savings 
                                        accounts, certain 403(b) 
                                        contracts, and certain 
                                        individual retirement 
                                        annuities.''
            (3)(A) The section heading for section 6693 of such Code is 
        amended to read as follows:

``SEC. 6693. FAILURE TO PROVIDE REPORTS ON INDIVIDUAL RETIREMENT 
              ACCOUNTS OR ANNUITIES OR ON INVESTMENT SAVINGS ACCOUNTS; 
              PENALTIES RELATING TO DESIGNATED NONDEDUCTIBLE 
              CONTRIBUTIONS.''

            (B) The table of sections for subchapter B of chapter 68 of 
        such Code is amended by striking the item relating to section 
        6693 and inserting the following new item:

                              ``Sec. 6693. Failure to provide reports 
                                        on individual retirement 
                                        accounts or annuities or on 
                                        investment savings accounts; 
                                        penalties relating to 
                                        designated nondeductible 
                                        contributions.''
            (4) The table of sections for part I of subchapter B of 
        chapter 68 of such Code is amended by adding at the end the 
        following new item:

                              ``Sec. 6716. Promotion of nonqualified 
                                        investment as eligible for 
                                        domestic investment economic 
                                        growth exclusion or 
                                        deduction.''
    (i) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.
                                 <all>